Pom Lecture (36)

Unit 2 Management of Conversion System Chapter 11: Resource Planning Lesson 35 – MRP-II Learning Objectives After reading this lesson you will be able to understand Manufacturing resource planning Purchasing objectives Good Morning students, today we are going to introduce the concept of what is known as MRP-II. We will discuss about how an integrated information system that shares data among and synchronizes the activities of production and the other functional areas of the business. MANUFACTURING RESOURCES PLANNING (MRPII) Historically, MRP systems typically were developed on a segregated basis, rather than as part of highly integrated information system. More recently, however, companies are beginning to logically relate many of their information subsystems to the MRP system. Bills of materials data, for example, can be shared with an engineering information system data base; order release and order receipts data can be shared by the order billing and accounts payable information systems; and inventory status data from MRP can be part of marketing or purchasing information systems. This type of information integration, in fact, is exactly the impetus for a new generation of manufacturing planning and control systems. Manufacturing resource planning (MRP II, or “closed loop” MRP) is an integrated information system that steps beyond first-generation MRP to synchronize all aspects (not just manufacturing) of the business. The MRPII system coordinates sales, purchasing, manufacturing, finance, and engineering by adopting a focal production plan and by using one unified data base to plan and update the activities in all the systems. As shown in figure the process involves developing a production plan from the business plan to specify monthly levels of production for each product

line over the next one to five years. Since the production plan affects all the functional departments, it is developed by the consensus of executives and becomes their “game plan” for operations. The production department then is expected to produce at the committed levels, the sales department to sell at these levels, and the finance department to ensure adequate financial resources for these levels. Guided by the production plan, the master production schedule specifies the weekly quantities of specific products to be built. At this point a check is made to determine whether the capacity available is roughly adequate to sustain the proposed master schedule. If not, either the capacity or the master schedule must be changed. Once settled, the master schedule is used in the MRP logic, as previously described, to create material requirements and priority schedules for production. Then, an analysis of detailed capacity requirements determines whether capacity is sufficient for producing the specific components at each work center during the scheduled time periods. If not, the master schedule is revised to reflect the limited available capacity. After a realistic, capacity-feasible schedule is developed, the emphasis shifts to execution of plan: purchase schedules and shop schedules are generated. From these schedules, work center loadings, shop floor control, and vendor follow-up activities can be determined to ensure that the master schedule is met.

An integrated system for planning and control Business plan Production plan (vendor

Master productive schedule

Manufacturing (materials; capacity; production schedules) Purchasing orders)

Rough-cut capacity plan Materials requirements plan

Engineering (process

and Product design) Detailed capacity plan Shop floor control; purchases control

Marketing (sales order Entry; delivery Projections) Finance (capital require-ments for capacity; working capital requirements) Accounting (accounts payable; Accounts receivable)

One use of the MRPII system is to evaluate various business proposals. If, for example, the output of product X increases by 20 percent in weeks 15 to 20 and that of Y decreases by 15 percent in weeks 10 to 15, how would operations and profitability be affected? the system can simulate how purchases and, hence, accounts payable are affected? The system can simulate how purchases and, hence, accounts payable are affected, when delivers to customers and accounts receivable occur, what capacity revisions are needed, and so on. The company-wide implications of the proposed change can be evaluated, and various departments can be coordinated according to a common purpose.

PURCHASING Materials management brings together under one manager all the planning, organizing, and control activities associated with the flow of materials into and through an organization. Physical distribution is even broader, encompassing managing materials flow into the organization as well as managing materials storage and transportation flow out as finished products. In the context of operations management, we focus here on the narrower purchasing function, which provides materials, supplies, and services from outside vendors (suppliers). Accordingly, purchasing is an important boundary function that supports operations by acquiring major resources for the conversion process. For manufacturing firms involved in assembly, it is not unusual for the cost of purchased materials to exceed, as a percent of total product cost, the value added internally to the product through manufacturing and assembly. The importance of the purchasing function to the firm’s performance and to operations performance is substantial. PURCHASING OBJCTIVES

The objectives of purchasing can be summarized thusly: to efficiently provide fairly valued materials, supplies, and services in a timely manner. The following objectives are particularly important to operations: 1. Good value: Value is the combination of price and quality. Good value means a competitive price, though not always the lowest one. 2. Reliable schedules: On-time, just-in-time delivery means schedules are reliable, a crucial quality. 3. Minimized investment: Through careful analysis, the economics of order size, caring costs, and stock out costs determine the investment level. For example, quantity discounts must justify the larger investment (for a larger order) or investment unnecessarily increases. 4. Efficient administration: Included here are executing a low-cost purchasing function, effectively coordinating activities with other internal functions (operations, engineering, etc.), and maintaining good relations with vendors. EFFECIVE PURCHASING Effective purchasing means learning the purchase requirements, identifying qualified sources of supplies, minimizing the total cost of supplies and administering the purchase. PURCHASING REQUIREMENTS Typically, purchasing receives an item requisition that states quantity, description, and date needed. These internally generated requisitions are necessary because management allows only purchasing to deal with outside vendors – the proven, most efficient approach for acquisitions. SOURCES OF SUPPLY Qualified sources of supplies are identified from salespersons, personal knowledge, advertisements, requistioners, executives, trade and industry associations, peers (other purchasing professionals), company records, and many other sources. COST OF SUPPLY Useful approaches for evaluating supply costs include analyzing supply item histories, make-or-buy decisions, value analysis, traditional inventory economic analysis, and discounts. PRICES AND VALUE

One of the functions of centralized purchasing is to get better prices than if purchasing were decentralized. Federal and state laws regulate pricing practices: price fixing, for example, is illegal, as is pricing differently the same item at the same quantity for different customers. ADMINISTERING THE PURCHASE Once purchase requirements are understood, costs evaluated, sources identified, and prices and values established, purchasing issues the supply order.

With that, we have come to the end of today’s discussions. I hope it has been an enriching and satisfying experience. See you around in the next lecture. Take care. Bye.